FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A client, a 35-year-old single professional with a high income and no dependents, is seeking an investment that offers tax-deferred growth, professional management, and a guaranteed income stream in retirement. They are concerned about outliving their savings and are comfortable with moderate investment risk. Which of the following products would be MOST suitable?
- AA 529 plan focused on aggressive growth mutual funds.
- BA variable annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider.
- CA whole life insurance policy with a cash value component.
- DA diversified portfolio of growth stocks and bonds.
Show answer & explanationAnswer & explanation
Correct answer: B. A variable annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider.
A variable annuity offers tax-deferred growth and professional management through its subaccounts. Adding a GLWB rider addresses the client's concern about outliving savings by providing a guaranteed income stream for life, which aligns with their retirement income objective and risk tolerance.
Why the other options are wrong
- A. A 529 plan is for education savings, not retirement income, and does not offer a guaranteed income stream.
- C. Whole life insurance provides a death benefit and cash value but is primarily for insurance protection, not designed to be a primary retirement income vehicle with guaranteed lifetime withdrawals.
- D. While offering growth and diversification, it lacks the guaranteed income stream feature the client desires.
Variable Annuity with GLWB
A variable annuity is a contract offering tax-deferred growth and a guaranteed income stream in retirement, often enhanced by riders like a Guaranteed Lifetime Withdrawal Benefit (GLWB).
- Offers investment growth potential through subaccounts.
- Earnings grow tax-deferred until withdrawal.
- GLWB rider provides a guaranteed income for life, even if account value drops to zero.
- Suitable for long-term retirement planning with lifetime income needs.
Memory trick: Annuities guarantee, for your retirement spree.